Guidelines for Firms in Non-Compliance of CSR Expenditure

India became the first country to mandate CSR spending by the corporates with the enforcement of new Companies Act in 2014. The legislation asks the corporates to rearrange their business models which would contribute in the national development. After the passing of this act, the CSR spending has been increasing every year. In fact, according to the KPMG report 2018-19, the CSR spending in 2017-18 by 100 companies in the country accounted to 7096.9 crores compared to 5779.7 crores in 2014-15.

However, there are several companies who were unable to meet the bare minimum CSR spending budget, even after three years since the enforcement of the law. In July 2018, about 272 companies were served notices by the Registrar of Companies for non-compliance with CSR expenditure. Between July 2016 and March 2017, as many as 1,018 companies, such as Adani Infrastructure and Developers, DLF Assets, and Vodafone India Services were issued notices for non-compliance. KPMG has identified three principal areas of non-compliance—disclosure of direct and overhead expenditure on projects, details of overhead expenses, and keeping these overhead expenses below 5 per cent of total CSR spends.

Poor understanding of the social needs of communities is considered as the main reason for poor CSR compliance. The problem is aggravated by inadequate infrastructure and implementation capability within organisations and lack of required expertise. In fact, most of the times, professionals handling CSR are not trained to comprehend societal nuances. More often than not, the people managing the human resource department handle CSR activities.

A Delhi Non-profit, Centre for Science and Environment (CSE) has prepared reporting guidelines for the benefit of companies which will help them in complying with the law while participating in social as well as national development. According to the guidelines, companies should self-regulate and be responsive to the disadvantaged, vulnerable and marginalised sections of society. They should respect and promote human rights, make efforts to protect and restore the environment, and support inclusive growth and equitable development. The guidelines show how to improve accountability and transparency in CSR spending and make it an integral part of a business.

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Regards,
The CSR Journal Team

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